Dividend yield
Dividend yield = annual cash dividend per share ÷ share price. A stock at EGP 20 that paid EGP 1.20 over the year yields 6%. Using the dividends of the last 12 months gives the trailing dividend yield, which looks backwards: it tells you what the company paid relative to today's price, and it does not guarantee the same payment next year. Some sources show a forward dividend yield based on the expected dividend or the latest dividend rate, so check which definition is used before comparing.
Will the dividend last?
Dividends come out of profits and cash. So the key questions are: how much of its profit does the company pay out? If it pays most of it, or more than all of it, there is no room if profits fall. Does it have real cash from operations to cover the payment, or does it borrow to pay? And has the dividend repeated over several years, or did it happen once from selling an asset or a one-off gain?
The high-yield trap
The cash paid out leaves the company itself, which is why the share price can fall once the right to the dividend ends. So a dividend is not a free gain if you buy the day before and sell the day after. The dates are covered in the lesson on the dividend timeline. There may also be taxes or fees on the dividend; ask your brokerage firm what applies to you.
Look at the dividend history
Open the corporate actions page, find a company that has paid more than once, and compare each year's dividend with its profits.
Check yourself
1. A stock at 40 paid 2 over the year. What is the yield?
2. A yield rose from 7% to 15% in a year with no increase in the dividend. Why, most likely?
Summary
- Dividend yield = annual dividend ÷ price; calculated on the last 12 months, it looks backwards.
- Whether a dividend lasts depends on profits, cash and its history, not on the percentage.
- A very high yield sometimes comes from a price that fell for a real reason.